A broadening framework

Author: | Published: 24 Apr 2015
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Serdar Paksoy and Begüm Nisli of Paksoy Law Firm examine how Turkey is dealing with anti-corruption through international engagement and legislative change

www.paksoy.av.tr


Transparency International's (TI) Corruption Perceptions Index ranked Turkey 64 out of 174 in 2014, dropping by five points compared to 2013. TI affirmed that Turkey's fall was the biggest of 2014, followed by Angola, China, Malawi and Rwanda, all of which had their scores drop by four points in 2014.

The Turkish Industrialists and Businessmen's Association (TÜSIAD), conducted field research on businesses' perception of corruption in Turkey. According to the publicly-released data by TÜSIAD, 36% of the interviewees affirmed that they believed corruption was very or quite frequent, and 37% felt the corruption rate was very high or quite high. Moreover, 46% of the interviewees believed that corruption was likely to increase in the future, while 28% believed that it would remain the same, 16% thought it would decrease, and 10% were silent on the matter.

Alongside global efforts in the fight against corruption, Turkey is broadening its legal framework in this area.

Turkey is party to many anti-corruption treaties, including the Organisation for Economic Co-operation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention), the United Nations Convention against Corruption, and the Council of Europe Criminal and Civil Law Conventions on Corruption. The OECD Anti-Bribery Working Group (ABWG) conducts periodical monitoring and the reports it has issued have boosted Turkey's anti-corruption progress. Consequently, Turkey amended its anti-corruption and related legislation in accordance with its international engagements in 2009 and 2012.

This article highlights developments in anti-corruption legislation applicable to companies doing business both in Turkey and abroad, particularly in the US and the UK.

Legislative framework

The main piece of legislation applying to anti-bribery and anti-corruption is the Turkish Penal Code 5237 (TPC). Supplementary legislation that plays an important role in the interpretation and implementation of this main legislation includes the Code of Misdemeanors 5326, Public Officers Law 657, Declaration of Property and Fight against Corruption Law 3628, Turkish Criminal Procedure Law 5271, and the Regulation on Ethical Principles for Public Officers and Procedures and Principles for Application.

The TPC criminalises different acts of corruption, including bribery, bid-rigging and fraud, these being the most general and common types of abuse encountered in business activities.

Bribery

In Turkish law, bribery is defined as providing benefits to a public official or to a third person appointed by the public official, directly or through intermediaries, in return for that public official acting or refraining from acting in a certain way in the course of carrying out their public duty. The completion of the act is not a condition to constitute a crime; mere agreement on the provision of the benefit is sufficient for committing the crime of bribery under Turkish law. Turkish law also prohibits facilitation or grease payments.

The TPC defines the term public official as a person appointed or selected to perform a public activity, or service, on an unlimited, permanent or temporary basis. However, the specific bribery provision of the TPC broadens the scope by extending it to include persons acting on behalf of professional organisations with a public institution status, as well as associations working for the public interest, cooperatives, and publicly traded joint stock companies.


"Assessing the risks should not be a one-shot evaluation"


In addition, the TPC criminalises providing, offering or promising benefits, directly or through intermediaries, to foreign public officials, to induce the official to perform or not to perform a task or with a view to obtaining or preserving business or an illegal benefit from international commercial transactions. The TPC enumerates foreign public officials as government employees, judges, members of a jury or other officials working at international, supranational or foreign state courts, members of international or supranational parliaments, persons carrying out a public duty for a foreign state, citizens or foreign arbitrators appointed for arbitration proceedings to resolve a legal dispute, and officials or representatives of international or supranational organisations established through an international treaty. If these individuals are bribed abroad by a foreigner in a dispute or a task involving Turkey, a Turkish public institution, a private legal person incorporated in Turkey or a Turkish citizen, the committed act of bribery is prosecutable in Turkey.

As mentioned earlier, Public Officers Law 657 prohibits public officials from requesting and receiving any gifts or benefits, directly or through an intermediary. In addition, the Regulation on Ethical Principles for Public Officers and Procedures and Principles for Application prohibits public officials from receiving gifts and benefits, irrespective of their monetary value, excluding, among other things, souvenirs distributed during public conferences and loans borrowed at arm's length or donations registered in the institution's inventory and disclosed to the public. The same regulation prohibits welcome, farewell and celebration gifts, scholarships, travel and accommodation cheques received from persons who are in a business, service or interests relationship with the institution for which the public official is working. Similarly, it is forbidden to take loans from these persons, in addition to accepting any kind of gifts, clothing, jewellery or food.

Depending on mitigating and aggravating factors of a given case, bribery warrants imprisonment from four to 12 years for the public official, the bribe-giver and the intermediary involved. From the perspective of legal entities, such as corporations, the TPC stipulates that no penal sanctions can be imposed on legal entities and provides for specific security measures, namely seizure of the goods used in committing or as a result of the crime committed by the representatives of a legal entity, seizure of proceeds of crime, and revocation of the licence granted by a public authority.

Due to the principle of territoriality, foreign companies and their representatives may only be convicted when they commit a crime in Turkey. There is no civil enforcement available for the acts of corruption under Turkish law.

Bid-rigging

Bid-rigging is criminalised and sanctioned by the TPC and Public Procurement Law 4734 (PPL).

The TPC describes the act of bid-rigging as fraudulent conduct and enumerates the following prosecutable under bid-rigging: (i) preventing qualified persons from participating in a tender or in transactions throughout the tender process; (ii) enabling unqualified persons to participate in a tender; (iii) excluding from the tender goods that meet the specifications; (iv) assessing the goods that do not meet the specifications; (v) disclosing confidential information to third parties; and, (vi) preventing qualified persons from participating in a tender by use of force, threat or other unlawful conduct and reaching an express or secret agreement among bidders to have an impact on the tender specifications, in particular, the price.

The TPC warrants imprisonment from three to seven years, depending on mitigating and aggravating factors of the crime committed. Bid-rigging is also stipulated in the PPL which lists forbidden acts quite similar to those listed by the TPC: (i) bid-rigging through fraud, promises, threat, influence, provision of benefits, agreement, extortion or bribe or other means; (ii) preventing participation, inducing or attempting to induce the bidders, acting in a way to influence the competition or the outcome of the tender; (iii) forging, using or attempting to forge and use documents or guarantees; and, (iv) submission of side-offers. In addition to the sanctions provided under the TPC, those committing these acts are banned from participating in tenders from six months to two years under the PPL.

Fraud

Fraud is defined as providing benefits to oneself or to a third party by defrauding someone and to the detriment of the persons defrauded. The TPC provides for imprisonment from one to five years and judicial fines up to 5,000 days. The act of fraud takes the form of aggravated crime in the event it is committed within the commercial activity of a company, and by a merchant, a company manager or any person acting on behalf of a company, and the punishment is also two to seven years of imprisonment and judicial fines of up to 5,000 days.

The Code of Misdemeanors 5326 adds to the sanctions stipulated under the TPC in terms of corporate liability for these crimes and provides that, in the event the crime of bribery, bid-rigging and fraud is committed in favour of a legal person and by an organ or a representative of that legal person or by a person assigned with a duty within the latter, the legal person may face an administrative fine from TL10,000 ($3,900) to TL2 million.

International projects

Turkey is a member of the Open Government Partnership initiative, OGP, a platform promoting transparency and accountability to improve the quality of governance. Turkey has undertaken to increase transparency and integrity in the public sector and to open two websites. The first website will consist of a platform whereby the public can follow the government's fight against corruption, discuss the matter publicly and participate in developing policies. The website will also provide transparent information regarding public expenditure. The second website will be an electronic public tender platform. Within the scope of the OGP, Turkey will organise workshops and seminars addressing both the public and private sectors, analyse corruption risks to detect the areas of exposure, and determine measures to prevent corruption.

In addition, Turkey implemented the Strategy on Increasing Transparency and the Strengthening of the Fight against Corruption, covering the period from 2010 to and throughout 2014. This Strategy shares similar objectives to promote transparency and fight corruption.

On the global front, Turkey is presiding over the G20 and B20 summits in 2015. Anti-corruption is again an important item on the B20 agenda, whereby the business world will discuss and raise awareness of the fight against corruption. Turkey is enjoying its presidency position, taking the opportunity to declare its standpoint against corruption, and entice foreign investors by demonstrating the progress it has made in offering a solid business environment.

Enforcement

Despite its comprehensive legal framework, Turkey is at times rightly criticised for its low level of enforcement against corruption, and global indexes indicate that Turkey's anti-corruption ranking does not entirely match its legislative efforts in this field. Particularly in the past two years, according to critics, Turkey has been facing an increasingly fragile investment environment due to lack of enforcement of corruption.


"Consequences of bribery can be harsh: The TPC warrants imprisonment from four to 12 years"


The OECD ABWG's last report on the matter, the Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Turkey (Phase 3 Report), welcomes Turkey's progress in the legislative field in terms of foreign bribery, cooperation in anti-money laundering processes and its efforts to raise awareness.

On the other hand, the Phase 3 Report indicates that Turkey has a low level of enforcement regarding foreign bribery. It affirms that Turkey has taken limited investigative action in six cases, has not taken any investigative steps in two, and was unaware of two other allegations that gained media coverage in both Turkish and foreign news. As a result, the ABWG recommended that Turkey be more proactive in detecting, investigating and prosecuting acts of foreign bribery. The ABWG expressed its concern regarding the corporate liability regime, taking into account that no legal person has been convicted since the reestablishment of the corporate liability of legal persons under the Code of Misdemeanors 5326. In addition, it affirmed that the corporate liability of state-owned or state-controlled enterprises is still blurred and it is unclear whether a natural person's conviction is necessary for sanctioning a legal person.

The ABWG also questions the adequacy of whistleblower protection under Turkish law. The Phase 3 Report affirmed that Turkey 'has not established comprehensive measures to protect public and private sector employees from discriminatory or disciplinary action when an employee reports suspected acts of foreign bribery' and that there is no legislative guarantee for protection from retaliation and protection of the whistleblower's identity. The ABWG therefore recommended that Turkey should ensure that appropriate steps were taken to protect whistleblowers from discriminatory or disciplinary action in both the private and public sectors.

Recommendations for investors

Carrying out thorough due diligence is imperative for any new business relationship. When acquiring an existing business, entering into a joint venture relationship, or signing a distribution agreement with a foreign counterpart, indepth due diligence and risk analysis are required to mitigate risks that may arise from the foreign counterpart's past or present behaviour. It is recommended to expand the scope of the due diligence so that it is not limited to that particular business counterpart's shareholding structure, assets and operations, but includes the review of proximity (such as proximity of their directors, managers, employees and agents) with persons performing public duties and their relationship with governmental bodies. The due diligence needs to be conducted periodically throughout the entire business relationship to provide more safety against violations of foreign bribery legislation.

Further, companies are advised to conduct an anti-corruption risk assessment to detect the most and least corruption-prone areas of their operation. The risk assessment also helps to design a more tailored and targeted compliance programme in line with the company's own risk exposure and to allocate resources effectively. Assessing the risks should not be a one-shot evaluation, but rather, it should be repeated periodically. Subsequently, it is important to draft and implement an anti-corruption ethics and compliance programme customised to meet the particularities of the company's own and the foreign counterpart's business, as well as the applicable local legislation. Investors should ensure that employees of the foreign business counterpart become familiar with the ground rules and that their implementation is observed at all levels of seniority in the company, including the top management and mid-level officers. Employees of the foreign counterpart should be trained in the rules of compliance; employees may commit corrupt acts without knowing that a certain conduct constitutes the crime of bribery or bid-rigging. Therefore, training should inform and warn the employees of the risks and consequences of corruption, providing real life examples that they may encounter during day-to-day business. In other words, the training should be as targeted as the compliance programme itself.

Businesses should establish adequate control mechanisms throughout all business processes and conduct audits regularly to prevent misuse of the company procedures. Even minor irregularities detected during the audit should be investigated, since they may lead the investigators to other major compliance issues. Strict control mechanisms regarding payments and expenses are effective methods in preventing company fraud and bribery.

It is also recommended to establish hotlines enabling employees or third parties to report suspected irregularities. Employees should not be afraid of retaliation or disciplinary action for reporting irregularities; therefore, whistleblowers should be protected internally in addition to the protection offered by the local labour legislation, if any. It is crucial to assess and investigate all reporting of suspected irregularities to demonstrate the company's zero tolerance policy against corruption in all its forms and therefore create deterrence among employees.

About the author
 

Serdar Paksoy
Founding and senior partner, Paksoy

Istanbul, Turkey
T: +90 212 366 47 57
E: spaksoy@paksoy.av.tr
W: www.paksoy.av.tr

Serdar Paksoy is the founding and senior partner of Paksoy Law Firm, focusing on corporate governance, mergers and acquisitions, white collar crimes, investigations and dispute resolution. He has been regularly advising foreign investors in Turkey for over 25 years. His representation of foreign investors involves matters in cross-border mergers and acquisitions, joint ventures and private equity investments in a wide range of sectors from financial services, banking, retail, transportation, logistics and manufacturing, to energy, insurance, healthcare and pharmaceuticals.

Paksoy is the head of Paksoy's dispute resolution practice group and an active trial lawyer in litigation and arbitration. He has extensive experience in matters involving commercial litigation, corporate governance, investigations and crisis advisory. He has advised and represented clients in domestic court litigation and arbitration proceedings, including domestic, international and ad-hoc arbitration. He has represented foreign and domestic investors in shareholder conflicts, investigations, internal controls, contractual disputes, product liability, concessionary disputes, tax litigation and administrative law proceedings.

Paksoy is a listed arbitrator from Turkey for the International Arbitral Centre of the Austrian Federal Economic Chamber. He is a member of the Russian Arbitration Association, the International Bar Association, the British Chamber of Commerce in Istanbul, the Swedish Chamber of Commerce in Turkey, the Association of Fellows and Legal Scholars of the CILS, Austria (honorary member), the Corporate Governance Association of Turkey and DEIK, Turkish External Economic Relations Council.


About the author
 

Begüm Nisli
Associate, Paksoy

Begüm Nisli specialises in compliance and investigations, mostly in anti-corruption and bribery matters, in addition to her general corporate governance work. She has conducted comprehensive internal investigations concerning Turkish anti-bribery and FCPA legislation, as well as US sanction matters. She is experienced in general corporate matters, including drafting and negotiating contracts, such as shopping mall leases, distribution, sale and purchase, supply and provision of services and other retail sector contracts.

Nisli is a graduate of Galatasaray University School of Law. She holds an LLM degree from the University of Lausanne, Switzerland.